DP466 A Chaotic Monetary Model of the Exchange Rate
Author(s): | Paul De Grauwe, Hans Dewachter |
Publication Date: | October 1990 |
Keyword(s): | Chaos, Chartism, Fundamental Analysis, Monetary Exchange Model |
JEL(s): | 132, 430 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=466 |
We use a monetary (Dornbusch) model of the exchange rate and introduce speculative dynamics, in which fundamentalists and chartists interact. The resulting non-linearities in the model produce `chaotic' behaviour of the exchange rate. We also analyse the effects of money-stock surprises in such a model. Finally, we study the behaviour of the exchange rate when `news' occurs infrequently.